Analysts at foreign research house CLSA have said they remain cautious on the margin outlook for Godrej Properties and believe pre-sales growth may not translate into commensurate profit growth
Mumbai-based real estate company Godrej Properties Ltd posted impressive sales growth in the March quarter. One of the key highlights was its best-ever new sales booking of ₹2,630 crore, a 77% sequential improvement. This was aided by seven project launches during the quarter, which the management said contributed 58% to the bookings. In volume terms, bookings during the quarter rose 74% sequentially to around 4.2 million square feet.
However, a repeat of this performance is unlikely considering the impact of the second wave on the sector. Some analysts are also worried about the impact on profitability.
For the fourth quarter in a row, the company reported an operating loss in the March quarter. While the loss was owing to one-offs, adjusted profit margins are still lower-than-expected.
Analysts at foreign brokerage CLSA point out that despite revenue recognition from newer projects such as The Trees in Vikhroli, profitability continues to disappoint. “Excluding one-offs, Ebitda margin was around 10%, much lower than the desired 20-25%. While the management did not guide for FY22, they expect ₹10,000 crore pre-sales in FY23. We remain cautious on the margin outlook and thus believe that pre-sales growth may not translate into commensurate profit growth," CLSA said in a report on 4 May. Ebitda is short for earnings before interest, tax, depreciation and amortization.
Godrej Properties’ share price has doubled over the past year, due to strong sales momentum. In the current backdrop, analysts expect the stock’s performance to come under some pressure.
In a post-earnings conference call, the company’s management said that this time the impact on execution will be lower than last year as no nationwide lockdown has been imposed. Labour availability at the firm’s sites is currently at 75%. Although the management does see an adverse impact on near-term demand, it remains confident about medium-term growth prospects.
But analysts are hardly convinced. “There is still no clarity on how the situation pans out– be it infections or vaccinations. Also, with stamp duty concessions no longer there, the demand outlook is muted and could take a severe hit. Though the company has a robust pipeline, there could be further delay in launches due to covid-led restrictions. We expect sales recovery to be more prolonged than the management expects," said an analyst with a domestic brokerage house, requesting anonymity.
Initially, the company’s FY21 launch pipeline was of 23 projects/phases, however of these, 12 projects have been delayed. The company’s management aims to launch 19 projects/phases in FY22, but cautioned that delay in regulatory approvals due to the pandemic could affect timelines.
These factors pose a downside risk to its pre-sales, as well as its profitability outlook.
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